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Faster-than-expected growth in consumer prices in December didn’t deter optimism that inflation is broadly receding. But Thursday’s consumer price index (CPI) report reinforced thoughts that the path to slower inflation won’t necessarily be a straight line, and that Federal Reserve interest-rate cuts might not come as fast, nor as furiously, as the market might expect.

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The U.S. Department of Labor announced said on Thursday that December’s consumer price index, which measures the change in prices on a variety of consumer goods and services, came in bit higher (0.3%) compared to November on a seasonally adjusted basis. Year-over-year, price growth was up 3.4%, marking a small acceleration from the previous month’s 3.1% YoY growth.

Meanwhile, “core” CPI—a measurement that backs out food and energy costs, which are more volatile than the other costs tracked by the Labor Department—was up by 0.3% month-over-month, and 3.9% YoY.

Most of these figures came in ahead of estimates from economists surveyed by Dow Jones:

  • MoM CPI: +0.3% (vs. +0.2%)
  • YoY CPI: +3.4% (vs. +3.2% est.)
  • MoM Core CPI: +0.3% (vs. +0.3% est.)
  • YoY Core CPI: +3.9% (vs. +3.8% est.)

Thursday’s CPI report showed a significant rise in shelter costs, which at +0.5% MoM (+6.2% YoY) accounted for the majority of the increase in core CPI. Gargi Chaudhuri, Head of iShares Investment Strategy, Americas, said core services inflation in both shelter and non-shelter components “exhibited strength but is still headed in the right direction, highlighting that this stickier portion of inflation has room to improve even with its already-great-recovery from early 2023 levels.”

“Unlike previous months, deflating goods prices did not spur further disinflation in the goods category,” Chaudhuri adds. “Core goods prices were flat on the month after declining the previous three months, partly due to an upward pressure in used car prices (+0.49% MoM), which we expect to be temporary, while apparel prices bounced back slightly (+0.1 MoM%) after holiday discounts in November.”

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One of the biggest themes among prognosticators handicapping the best stocks and best ETFs for 2024 has been how quickly and how fast the Federal Reserve will start throttling back its benchmark Federal funds rate.

The general consensus: Be patient.

“The upshot of today’s inflation report is that the inflation dragon, while maimed, has yet to be slain,” says Jason Pride, Chief of Investment Strategy & Research at Glenmede. “Absent a broad cooling in aggregate demand, the last leg of inflation normalization may prove elusive. Accordingly, the Fed is likely going to want to see more progress than this before having serious discussions about cutting rates in 2024.

“Rates are likely to stay on hold at the FOMC’s December session, but the door is open to rate cuts in the back half of this year, especially if the Fed finds itself in a position to be accommodating a flagging economy.”

More Pros’ Takes on December CPI

Here’s what several experts have to say about December’s CPI numbers and what they mean for consumers, the Federal Reserve’s future actions, and more:

“This print should challenge the market’s expectations of rate cut timing. There is nothing in the report to cause the Fed to hurry to cut rates. However, because it was not too hot, it should leave the hopes of a soft landing intact.

Ultimately, we are focused on the labor market to dictate the speed and extent of the cutting cycle, and we continue to believe the middle of the year to be more appropriate to start. Either way, the December inflation data is unlikely to change the overall dovish trajectory this year as material progress has been made. In our view, the dovish Central Bank tone, progress in inflation, decline in oil prices, and resilient, but loosening labor market are all positives for risk assets. We believe any inflation scare driven drawdowns should be bought.”

—Alexandra Wilson-Elizondo, co-CIO for Multi-Asset Solutions, Goldman Sachs Asset Management

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“In my view, this uptick in CPI is a critical reminder of the unpredictable nature of economic recovery and the murkiness of the macro-economic data. It suggests that investors might need to temper their expectations and remain vigilant. Markets may need to brace for potential volatility, as the Fed could maintain or potentially intensify its restrictive monetary policy stance in response to these inflationary pressures.” 

—Jon Maier, Portfolio Strategist at Global X

“What should be most important for investors is that the Fed is done raising rates (and this report doesn’t change that at all), so whether they cut in March or cut in June and whether they cut four times, three times, or only two times, shouldn’t matter too much. As long as the economy stays out of recession the market will keep moving higher and we will have a positive 2024 (even if the gains aren’t as exuberant as last year), but if we do slide into the waiting-for-Godot recession, then the stock market could drop 20% or more, so that is the most important issue, not when or how many times the Fed ends up cutting in during this ‘normalization’ phase.”

—Chris Zaccarelli, Chief Investment Officer, Independent Advisor Alliance

“CPI should remain on a downward trajectory this year, but this slight backup serves as a healthy reminder that imminent rate cuts shouldn’t be taken for granted. With markets buoyed by financial conditions loosening at a historically rapid rate over the last couple months, there is room to absorb some disappointment in this print and look forward to more progress on the inflation battle next month. However, with so much of the recent market optimism predicated on expectations of goldilocks rate cuts, investors are wise to expect disproportionately negative reactions to continued CPI stubbornness.”

—Adam Hetts, Global Head of Multi-Asset and Portfolio Manager, Janus Henderson Investors

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“Today’s inflation print confirms that the process of disinflation will not be a straight line down, requiring further patience from the Fed before officially transitioning towards an easing cycle. The key impediment for the next leg down in inflation is shelter, which continues to remain stubbornly elevated. … Supercore services ex-housing, an important consideration for the Fed given its correlation with wage growth, rose 0.4% on the month, remaining above levels that are consistent with the 2% target. Core goods inflation came in flat breaking the six-month streak of consecutive declines. A key driver of the broken streak came from autos with used car pricing coming in hot suggesting that pricing power in the sector has some staying power.

“Taken together, this print should put some modest upward pressure on long-term Treasury yields as near-term expectations for rate cuts are pushed out slightly.”

—Jeff Schulze, Head of Economic and Market Strategy, ClearBridge

“Today’s inflation data is a disappointment for the bulls, but it may not have the biggest impact because attention will soon turn to quarterly earnings. Few things in the stock market or economy move in a straight line, so investors may look past this high inflation reading given the Fed’s softer language recently. It’s not great news for stocks, but it might not be fatal either.”

—David Russell, Global Head of Market Strategy at TradeStation

“One theme is clear—the transition from 8% to 4% inflation is easier than the transition from 4% to 2% inflation.”

—Gargi Chaudhuri, Head of iShares Investment Strategy, Americas

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Kyle Woodley is the Editor-in-Chief of WealthUp. His 20-year journalistic career has included more than a decade in financial media, where he previously has served as the Senior Investing Editor of Kiplinger.com and the Managing Editor of InvestorPlace.com.

Kyle Woodley oversees WealthUp’s investing coverage, including stocks, bonds, exchange-traded funds (ETFs), mutual funds, real estate, alternatives, and other investments. He also writes the weekly Weekend Tea newsletter.

Kyle spent five years as the Senior Investing Editor at Kiplinger, and six years at InvestorPlace.com, including two as Managing Editor. His work has appeared in several outlets, including Yahoo! Finance, MSN Money, the Nasdaq, Barchart, The Globe and Mail, and U.S. News & World Report. He also has made guest appearances on Fox Business and Money Radio, among other shows and podcasts, and he has been quoted in several outlets, including MarketWatch, Vice, and Univision.

He is a proud graduate of The Ohio State University, where he earned a BA in journalism … but he doesn’t necessarily care whether you use the “The.”

Check out what he thinks about the stock market, sports, and everything else at @KyleWoodley.